The Chinese action would lead to the U.S. reciprocating with comparable measures that might potentially include more stringent actions that could affect the Chinese chip manufacturing industry. That could, in turn, delay a potential thawing of U.S.-China trade and commercial relations.

China had cracked down on Chinese tech giants in the past couple of years. It included tech majors in fintech, ride hailing, food and consumer goods delivery, after school teaching/tuition, among others. Various ostensible reasons like breach of regulations etc. were given for the Chinese government action at the time. Heavy penalties and severe restrictions were imposed on the companies concerned, many of which were listed on US stock markets. Over a trillion dollar combined was wiped off their books as their stocks tumbled instantaneously. In the end, all these corporate giants without exception capitulated meekly and agreed to follow the government diktats, including in allocating huge amounts for government schemes aimed at “common prosperity”, a project close to President Xi Jinping’s heart.

In recent weeks some companies with U.S. links that made assessments, primarily in the economic and financial domains, were raided on the allegations that they were passing on state secrets [read, such assessments] to foreigners. However, China’s ban on America’s biggest chip manufacturer Micron Technology last week surprised many as it was an American company of a real colossal size that was at the receiving end this time. The Cyberspace Administration of China (CAC) stated that a “review found that Micron’s products [sold in China] have serious network risks” that “posed significant security risks to China’s critical information infrastructure supply chain, affecting national security”.

The CAC did not elaborate further on the details of the products allegedly involved or the type of risks they posed. It is known that Micron’s products are widely being used in China, including in its information infrastructural projects, telecoms and smart phone and personal computer manufacturing. Responding to the Chinese move, the U.S. government stated that it “opposed restrictions that have no basis in fact” and would coordinate with allies “to address distortions of the memory chip market caused by China’s actions”.



Micron's 232-layer 3D NAND. Image credit: Micron

The Chinese move had come just a day after President Joe Biden’s announcement that the G-7 was contemplating de-risking and diversifying the grouping’s relations with China. Micron chief Sanjay Mehrotra was present at the G-7 deliberations in Hiroshima as a member of a delegation of business leaders. Sanjay Mehrotra had also announced that his company would invest about US$3.6 billion in technology development in Japan, a country China considers a “future rival” in the tech sector.

China has been upset over recent U.S. restrictions on American chip manufacturing and other hi-tech companies dealing with their Chinese counterparts as the U.S. steps had dealt a big blow to its developmental strategies. The U.S. was also accused of coercing its regional allies and partners, including Japan and South Korea, to follow its course of depriving it [China] of microchips and modern chip manufacturing technologies. It is widely assessed that the American move has affected China’s technological advances, as also its hi-tech industrial manufacturing that are crucial for the country’s journey to become world’s number one economy.

As mentioned above, even as China had recently aimed its guns on some firms with U.S. links on the mainland by engaging in raids and initiating other measures, it is for the first time that a big U.S. chipmaker has been targeted. Curiously, it has come at a time when China maintains that it was committed to ‘a transparent regulatory framework’ for making available a level playing ground for all stakeholders by, among other things, opening up its markets further. The recent visits to China by Elon Musk of Tesla, Laxman Narasimhan of Starbucks, Jamie Dimon of JPMorgan, Tim Cook of Apple, and top executives from Samsung, Aramco, Volkswagen, HSBC, Standard Chartered, Kering (France), among an array of other corporate honchos, and the type of reception and the level of meetings they got had sent out positive vibes at the time.

It remains to be seen as to what extent the CAC ban will affect Micron’s manufacturing facilities in China, or sectors like smart phone and personal computer manufacturing that do not appear to have been covered under the ban. In fact, Micron’s involvement in the Chinese government sector and telecommunications that came under the ban accounts for only a small share of the company’s overall business in the country. However, the fact remains that about ten percent of the company’s total sales of US$30.7 billion in 2022 was generated from China.

It is likely that the company’s Chinese clients would look for other non-American vendors, for example companies from Korea. But there is every likelihood of the U.S. influencing such Korean companies (who can potentially replace Micron) to informally put imperceptible restrictions on supplying their products to the Chinese side (in place of the supplies from Micron). At a country-to-country level, the Chinese action will lead to the U.S. reciprocating with comparable measures, that might potentially include more stringent actions that could affect the Chinese chip manufacturing industry. It would, in turn, further delay a potential thawing of U.S.- China trade and commercial relations that would eventually impact the overall global economic environment.

(By AICIS Research Team, based on open sources of information. Views expressed in the article are personal to the authors, and do not necessarily reflect the views of AICIS.)